Efficient, Clean, Reliable -- But Can CHP Be Built Without Subsidies?

State agency doubts administration will see 1,500 megawatts of new CHP by 2020.

The state wants to expand the role more efficient and less-polluting power plants play in both ensuring the reliability of electric service and hardening the power grid in the likelihood of more extreme weather, such as Hurricane Sandy.

The emerging policy from the Office of Clean Energy, however, still has many unanswered questions -- particularly when comes to providing the financial incentives to attain that goal.

At this point, even the agency's staff questions whether the state will able to achieve a top priority of the Christie administration -- developing 1,500 megawatts of new capacity from those plants, known as combined heat and power facilities, by 2020.

CHP plants are widely touted by many in the energy sector, primarily because they produce electricity and heat simultaneously, typically more efficiently, at a cheaper cost, and with less pollution than most conventional generating stations. Few CHP facilities, however, are being built without some sort of subsidy or grant.

The push to promote the technology is partly driven by Sandy, which left more than 2 million people without power last October, but many facilities served by CHP plants, such as hospitals and universities, were unaffected. There are currently 209 CHP facilities in the state, producing about 3,000 megawatts of generating capacity, according to the New Jersey Board of Public Utilities.

“The staff does not believe that current funding levels and programs will be sufficient to meet the state’s goal of 1,500 megawatts of CHP by 2020,’’ according to a straw proposal detailing funding levels for clean energy programs in 2014. The proposal suggests setting aside $30 million to promote CHP, but said money from other clean energy programs may be reallocated if demand exceeds the recommended appropriation.

The state’s failure to develop more of the CHP plants stems, in part, from repeated raids on clean energy funds aimed at promoting the building of such facilities. The state also is scaling back how much money it raises from ratepayers for clean energy programs, dropping its proposed budget for 2014 to $227 million, down from the $379 million it hoped to spend in 2012.

Recognizing the need to provide other means to incent new CHP development, the agency is planning to convene working groups to look at ways to develop a long-term funding mechanism. It's also taking a look at requiring utilities to purchase a set amount of electricity from CHP plants, something akin to what is mandated by the state’s aggressive solar policies.

The latter recommendation mirrors, in some aspects, a proposal working its way through the Legislature that would establish an alternative energy portfolio. The concept has received a lukewarm response from the state’s Division of Rate Counsel, primarily because the financial incentives that would go to CHP developers would be paid for by surcharges on the utility bills of electric and gas customers.

But industry lobbyists believe the state is moving in the right direction, noting it emulates a program already in place in Massachusetts.

“We’re very encouraged by the fact that both regulators and legislators are looking at the same thing,’’ said Fred DeSanti, a lobbyist who has been pushing the state to promote CHP. Without financial incentives, he said, it will be difficult to move these projects forward.

“The biggest thing is it allows a project to be financed on a forward cash scheme,’’ DeSanti said. “The banks will allow the developers to borrow the money to finance the project.’’

Gearoid Foley, director of the New Jersey’s federal Department of Energy Mid-Atlantic Clean Energy Application Center, agreed, saying the Massachusetts model has worked well. “Generally, it has been very successful in encouraging CHP,’’ Foley said.

Foley said he agreed with the state’s assessment that building more CHP plants would provide added benefits by continuing to provide electricity during extreme weather. He noted a Rutgers study that estimated $11 billion in gross domestic product was lost because businesses were left without power for a week or more.

“CHP would certainly offset some of the negative effects of a storm,’’ Foley said.

Not everyone is thrilled with the push to develop CHP. Jeff Tittel, director of the New Jersey Sierra Club, said CHP is good because it helps businesses lower their energy costs, but it is not a long-term solution for the state.

“You are still burning a fossil fuel,’’ he said. “Other [clean energy] programs end up getting cut that could produce more jobs and reduce pollution more.’’